There are many different ways to transfer financial assets to heirs in the event of a person’s passing. The most well-known is simply to write a will, which designates which heir is entitled to which assets. Many more complex estate plans will also use trusts to hold finances and pay them out over time.
Another option, however, is to use a payable on death account. What is this and how does it affect your estate plan?
You choose a beneficiary in advance
The basic way that a POD account works is that you choose your beneficiary in advance, and you tell the financial institution that that person should get the contents of the account if you pass away. This sets up a situation where “the immediate transfer of assets is triggered by the death of the client.”
One of the benefits of doing this is that it is a quick and simple way to move assets into someone else’s name. When you put it into a will, the estate executor has to go through all of the assets, gain access to the accounts, inventory the assets and then distribute those assets as instructed by the will. This leaves a lot of room for error and the potential for legal disputes — and it takes time. A payable on death account just instantly switches the money into someone else’s name.
This really does affect your estate plan because you no longer need to put those assets into your will at all. Since they are transferred immediately on your passing, they leave your estate before the will takes over. Even if you were to put the assets into your will, the financial institution would not follow the instructions, but would simply pay the money to the beneficiary that was on record. This is similar to how it works with a life insurance policy.
As you can see, there are a lot of estate planning options, and it’s important to know which ones will work best for you and your family.